EFTA00310618.pdf

CONFIDENTIAL MEMORANDUM SAB CAPITAL PARTNERS, L.P. CLASS B LIMITED PARTNERSHIP INTERESTS SAB CAPITAL ADVISORS, L.L.C. Mardi 2002 499055.21 EFTA00310618  Copy No. 258 Name: Jeff Epstein SAB CAPITAL PARTNERS, L.P. 650 Madison Avenue 26th Floor New York, NY 10022 (212) 610-9060 Prospective investors should carefully read this Confidential Memorandum in its entirety. However, neither the contents of this Confidential Memorandum nor any subsequent communication from the general partner of the Partnership (the "General Partner") or its respective members, officers, employees or representatives should be considered to be legal or tax advice, and each prospective investor should consult with his or her own counsel and advisers as to all matters concerning an investment in the Partnership. This offering relates solely to Class B Limited Partnership interests. There will be no public offering of limited partnership interests in the Partnership. No offer to sell (or solicitation of an offer to buy) is being made in any jurisdiction in which such offer or solicitation would be unlawful. This Confidential Memorandum has been prepared solely for the information of the person to whom it has been delivered on behalf of the Partnership for the sole purpose of evaluating the private placement described herein and may not be reproduced or used for any other purpose. Each person accepting this Confidential Memorandum agrees to return it to the General Partner promptly upon request. The Partnership is not registered as an investment company under the Investment Company Act of 1940, as amended (the "Company Act"). The General Partner and the management company of the Partnership are not registered as investment advisers under the Investment Advisers Act of 1940, as amended, or any state statute, and neither presently intend to (but may in the future) so register. The Partnership will not engage in any transactions involving commodity futures contracts (and related options) until, to the extent required by applicable regulations, the General Partner registers as a commodity pool operator with the Commodity Futures Trading Commission (the "CFTC") and the National Futures Association, or until the General Partner qualifies for an exemption from such registration under the rules of the CFTC. INTERESTS IN THE PARTNERSHIP ARE SUITABLE ONLY FOR SOPHISTICATED INVESTORS WHO ARE "QUALIFIED PURCHASERS" UNDER ME COMPANY ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER FOR WHOM AN INVESTMENT IN THE PARTNERSHIP DOES NOT CONSTITUTE A COMPLETE INVESTMENT PROGRAM AND WHO FULLY UNDERSTAND AND ARE WILLING TO ASSUME THE RISKS INVOLVED IN THE PARTNERSHIP'S INVESTMENT PROGRAM. THE PARTNERSHIP'S INVESTMENT 499055.21 EFTA00310619 PRACTICES, BY THEIR NATURE, MAY BE CONSIDERED TO INVOLVE A SUBSTANTIAL DEGREE OF RISK. (SEE "CERTAIN RISK FACTORS.") EACH PROSPECTIVE INVESTOR IS INVITED TO MEET WITH THE MANAGING MEMBER OF THE GENERAL PARTNER TO DISCUSS WITH, ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, SUCH PERSON CONCERNING THE TERMS AND CONDITIONS OF THIS OFFERING OF INTERESTS, AND TO OBTAIN ANY ADDITIONAL INFORMATION, TO THE EXTENT THE GENERAL PARTNER POSSESSES SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE, NECESSARY TO VERIFY THE INFORMATION CONTAINED HEREIN. NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESEN- TATION, OR GIVE ANY INFORMATION, WITH RESPECT TO THE INTERESTS, EXCEPT THE INFORMATION CONTAINED HEREIN. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT OR THE MERITS OF AN INVESTMENT IN THE SECURITIES OFFERED HEREBY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. 499055/1 EFTA00310620  TABLE OF CONTENTS Pace OVERVIEW OF THE PARTNERSHIP 1 INVESTMENT PROGRAM 2 KEY INVESTMENT HIGHLIGHTS/MERITS 7 MANAGEMENT OF THE PARTNERSHIP 8 SUMMARY 11 CERTAIN RISK FACTORS 30 CONFLICTS OF INTEREST 36 BROKERAGE COMMISSIONS 37 TAX ASPECTS 38 ERISA CONSIDERATIONS 53 ADDITIONAL INFORMATION 54 499055.21 EFTA00310621  OVERVIEW OF THE PARTNERSHIP SAB Capital Partners, L.P. (the "Partnership") is a Delaware limited partnership which commenced operations as a value-oriented private investment partnership on January 4, 1999. The affairs of the Partnership, including its investment portfolio, are managed by SAB Capital Advisors, L.L.C. (the "General Partner"), a Delaware limited liability company, of which Scott A. Bommer serves as the managing member (the "Managing Member"). Mr. Bommer also actively manages SAB Capital Partners II, L.P., a Delaware limited partnership, for investors who are not "qualified purchasers," as such term is defined under the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder (the "3(c)(1) Fund") and SAB Overseas Fund, Ltd., an exempted company organized under the laws of the Cayman islands for non-U.S. investors and for certain tax-exempt U.S. investors (the "Offshore Fund"), each of which has an investment program substantially similar to that of the Fund. The Partnership's investment objective is to earn attractive long-term rates of return while seeking to minimize the risk of permanent capital loss. While the Partnership may pursue a broad array of investment strategies (including those enumerated below), its primary investment focus is to purchase and sell short publicly traded securities of U.S. entities which the General Partner believes are trading at material departures from their "intrinsic" values. The Partnership's investment philosophy encompasses five primary components: (i) applying a "private market" investment approach focused on identifying the "intrinsic" value of a business or security, (ii) employing a research intensive investment methodology, (iii) pursuing opportunities which the General Partner believes possess a "margin of safety" and a low probability of a permanent capital loss, (iv) making concentrated investments (subject to some limitations discussed herein) in situations which the General Partner believes have favorable risk/reward characteristics, and (v) focusing on situations in which the General Partner believes it has a competitive insight through identifying investment attributes which are not widely recognized or are misread by the market. The Partnership currently intends to focus on situations the General Partner believes are underfollowed, misperceived due to complexity or change, or experiencing market overreactions or other structural inefficiencies, and in which the General Partner believes there is a high probability of value creation or value realization over a reasonable period of time. Over time, the Partnership may pursue a broad array of investment strategies which the General Partner believes will minimise the Partnership's risk of permanent capital loss and in the current environment may reduce its exposure and correlation to the U.S. public equity markets generally. These strategies may include: long-term value investments, short sale positions, "paired" or "hedged" investment positions (long one security and short a specific security, basket or index), and event-driven strategies (including investments in distressed debt and entities undergoing liquidations or spin-offs). In addition, the Partnership will have the ability to invest a portion of its assets (but in no event more than 20% of any Primary Capital Account Sub-Account (as defined below under "Summary — Capital Accounts") of a Limited Partner, calculated at the time a position is acquired and including the amount of any unfunded commitments with respect to each such Primary Capital Account Sub-Account) in illiquid 49905511 EFTA00310622 investments, which will allow it to capitalize on privately structured opportunities which are generated by its public market activities. INVESTMENT PROGRAM Investment Objective The Partnership's investment objective is to earn attractive long-term rates of return while seeking to minimize the risk of permanent capital loss. Investment Philosophy Private Market Approach. The Partnership views its public securities holdings as fractional ownership interests in businesses and attempts to pursue opportunities in which the General Partner believes a security's price diverges from its "intrinsic" value. The Partnership defines "intrinsic" value as the present value of the expected cash flows that will be available to the owners of a security over its lifetime discounted at a rate that appropriately reflects the risk and volatility of the cash flows. The Partnership attempts to invest in businesses (or sell short securities), which at their then current prices provide attractive (or the prospect of very poor) rates of return and will not pursue multiple expansion, sector rotation, or technical and other non- fundamental analyses as its primary investment rationale. Rigorous Research. In executing its strategies, the Partnership incorporates much of the research-intensive analysis that a private market buyer might perform in making an investment. While the analysis of a specific investment will vary depending on the type of investment, it will likely include detailed financial, accounting and valuation analysis, and rigorous company, industry and competitive analysis. This analysis may encompass an examination of financial statements, meetings with company management, and interviews with customers, competitors and suppliers, and may focus on evaluating asset values, the sustainability of expected future economic earnings, capital structure, validity of GAAP accounting, company strategy, industry attractiveness, competitive dynamics, cyclicality, potential for operating improvements, and comparisons of competitive product offerings and cost structures. Preservation of Capital. The General Partner believes that targeting situations which are trading at significant departures from their "intrinsic" values provides a "margin of safety" which will afford both a low probability of loss of principal and favorable risk-reward characteristics. The General Partner believes that these situations are generally rare, and as a result, prefers to make concentrated investments in situations which it believes have materially favorable risk/reward characteristics. Concentration. While the degree of the Partnership's concentration at any given time will be a function of a number of factors, including the attractiveness, size, liquidity and perceived risk of an individual investment opportunity, the opportunity set of competing investments, as well as the size of the Partnership, the General Partner believes that a majority of the benefits of diversification can be achieved with a portfolio of fewer than 10 positions and views a concentrated portfolio as a competitive advantage. Although a concentrated portfolio 499055.21 -2- EFTA00310623 amplifies the effect of both good and bad investments, in contrast to portfolios managed by traditional equity analysts and portfolio managers who follow numerous situations with limited information, it will allow the Partnership to perform more extensive research and analysis. While the Partnership plans to pursue a concentrated investment program, it will not invest more than 25% of a Limited Partner's capital account (calculated at the time a position is acquired and including the amount of any unfunded commitments with respect to such capital account) in the securities of a single issuer or group, of affiliated issuers. For purposes of determining whether an investment would cause the Partnership to exceed the 25% limit, long and short positions in the securities of an issuer and/or group of affiliated issuers will not be aggregated. The General Partner believes that the Partnership's degree of concentration may decline over time as the Partnership increases in size. Insight into Mispricina. In pursuing investment strategies, the Partnership may focus on situations in which the General Partner believes it has a competitive insight through identifying investment attributes which are not widely recognized or are misread by the market. The Partnership currently plans to focus on situations which the General Partner believes are mispriced as a result of being underfollowed, misperceived due to complexity or change, or are experiencing market overreactions or other structural inefficiencies. In addition, the Partnership will attempt to pursue situations in which value creation or value rePlization will likely be achieved over time, either through a market catalyst (e.g., specific attributes becoming recognized) or through finding companies with owner/managers focused on enhancing shareholder value. A critical factor in selecting investments will be an assessment of the situational dynamics and the likelihood of explicit company action that will cause value to be created or realized. Investment Focus While over the life of the Partnership its investment focus may change, the General Partner believes that the following areas currently afford attractive investment opportunities and enable the Partnership's research intensive investment methodology to yield it a competitive advantage: Underfollowed Securities. The General Partner believes that there are a meaningful number of companies in the micro-, small- and mid-cap areas ($50 million-$2 billion in market capitalization) which, due to their small size, low level of investment banking business, and low level of liquidity, lack significant Wall Street research coverage and are unfamiliar to the investment community. This lack of coverage and familiarity can often lead to mispricing of securities. Complexity and Change. The General Partner also believes that a large number of opportunities exist which, due to structural, operational, financial, legal or other complexities, or company or industry change (e.g., spin-offs, restructurings, acquisitions etc.), have the potential to be misunderstood. Often complexity and change can lead to mispricing as many analysts lack the time, inclination or capability to perform the intensive analysis necessary to evaluate these situations. 499055.21 -3- EFTA00310624  Market Overreaction and Other Structural Inefficiencies. Finally, the Partnership will pursue companies experiencing irrational sentiment, liquidity and regulatory-driven events, and other structural inefficiencies. While it is difficult to estimate the number and frequency of these opportunities, the General Partner believes that attractive opportunities are often created by capital scarcity, overreaction to events and investment behavior which is based on factors other than a company's "intrinsic" value. In all of the above mentioned areas, the opportunity for significant price appreciation exists as the factors causing the mispricing become resolved or recognized in the marketplace, market sentiment shifts, or companies take steps to create or realize value. Examples of situations which have the potential to be mispriced include: Small companies which are covered only by regional securities firms or not at all; - Companies with multiple operating businesses or with operating businesses which the General Partner believes are not being appropriately recognized by the market; ▪ Companies with equity interests in separately traded securities; Corporate events (e.g., spin-offs, asset acquisitions or dispositions, mergers, etc.); Financial and operational restructurings and recapitalizations; Accounting complexity (e.g., divergence of GAAP from economic earnings for a period of time); Complex financial securities (e.g., rights offerings, merger securities, etc.); ▪ Companies undergoing bankruptcy proceedings, and companies and industries undergoing deregulation or excessive litigation; Industries undergoing structural shifts (e.g., consolidation, product substitution, technology shifts, etc.); Companies facing increasing or decreasing competitive threats; ▪ Opportunities created by purchase and sale behavior based on factors other than "intrinsic" value including: momentum investing, market overreaction to short-term events, market psychology towards in-favor vs. out-of-favor industries, and forced liquidations (e.g., mutual fund redemptions, required sales of distressed securities, etc.). 49905521 -4- EFTA00310625 Investment Strategies Over time, the Partnership may pursue a broad array of investment strategies which the General Partner believes will minimize the Partnership's risk of permanent capital loss and in the current environment may reduce its exposure and correlation to the U.S. public equity markets generally. These strategies may include: long-term value investments, short sale positions, "paired" or "hedged" investment positions and event-driven investments. In addition, the Partnership may invest a portion of its assets (but in no event more than 20% of any Primary Capital Account Sub-Account of a Limited Partner, calculated at the time a position is acquired and including the amount of any unfunded commitments with respect to each such Primary Capital Account Sub-Account) in illiquid investments, which will allow it to capitalize on privately structured opportunities generated by its public market activities. Finally, as part of its investment program, the Partnership may from time to time use leverage. While the Partnership is not limited in the amount of leverage it may utilize, the General Partner currently does not intend to employ total leverage which exceeds 50% of the net assets of the Partnership. Long-Term Value Investments. While the Partnership may purchase securities which the General Partner believes are trading at discounts to their "intrinsic" values within a wide array of valuations and time horizons, it generally has a bias toward purchasing businesses at very attractive prices and quantitatively low multiples of current economic earnings or asset values. The Partnership will generally make investments which, at their then current prices, it is comfortable holding for long periods of time. However, the Partnership will also make shorter- term investments and will generally not hold investments after they have reached "intrinsic" value in an effort to benefit from further price appreciation. "Paired"/"Hedged" Positions. The Partnership may establish "paired" or "hedged" investment positions through the combination of a long investment in a security and a short sale position in a specific security, basket of securities or index. The Partnership may pursue these investments in several circumstances including: (i) to hedge public market securities which a company owns (holding company structure) or a particular business unit of a company by selling short a comparable company, to create the remaining businesses at a discount to the sum of its parts, (ii) to invest in a business which the General Partner believes is mispriced relative to its peers and fits its investment focus, but does not appear attractive on an absolute basis, and (iii) to increase the size of an attractive short position which is mispriced compared to its peers, beyond a level that the Partnership would normally consider, by adding a long position to hedge industry and market risk. Short Sale Positions. The Partnership may establish stand-alone short sale positions in securities which it believes are trading at excessive premiums to their "intrinsic" values. The Partnership will generally pursue opportunities in companies exhibiting factors which the General Partner has found effective in selecting attractive short sale positions including companies which: under a reasonable set of circumstances appear unlikely to grow into their valuations, are earning seemingly unsustainably high returns on capital in commodity businesses ("at risk" companies), possess significantly aggressive accounting practices, have large volumes of insider stock sales, or have deteriorating fundamentals or clear competitive threats. ♦9905521 -5- EFTA00310626  Event-Driven Investments. The Partnership may pursue investments in situations tied to significant events. Examples of these events include: distressed situations, liquidations, spin-offs, and selective risk arbitrage situations. Notwithstanding the existence of an "event," the Partnership will evaluate these investments with the same philosophy by which it examines all investments including a focus on "intrinsic" value and "margin of safety." Illiquid Investments. As part of its investment program the Partnership may invest, from time to time, in investments which, the General Partner believes lack a readily ascertainable market value or which, in the sole discretion of the General Partner, should otherwise be held in separate accounts (each such investment, a "Side-Pocket Investment;" and each such account, a "Side-Pocket Account"). No more than 20% of any Primary Capital Account Sub-Account of a Limited Partner (calculated at the time a position is acquired, with Side-Pocket Investments valued at cost and including the amount of any unfunded commitments with respect to each such Primary Capital Account Sub-Account) may be invested in Side- Pocket Investments or other investments which, due to legal or contractual restrictions, are not freely transferable (as reasonably determined by the General Partner). The General Partner believes that the ability to pursue illiquid investments provides a competitive advantage by enabling the Partnership to capitalize on privately structured opportunities generated by its public market activities. Risk Management The General Partner defines "risk" in the investment context as the possibility of permanent capital loss as well as interim liquidity constraints. In executing its investment strategies, the Partnership applies a variety of techniques which the General Partner believes may help reduce risk including: (i) a value orientation, (ii) hedging, (iii) security analysis, (iv) limited diversification, and (v) investment review and monitoring. Value Orientation. The General Partner believes that an emphasis on purchasing securities which are trading at significant departures from their "intrinsic" values and at low multiples on an absolute basis, provides a "margin of safety' against materially negative changes in an investment thesis. Heat . The Partnership may use short sale positions in the establishment of both "paired" and stand-alone investment positions. In both cases, these short sales may serve to reduce the market exposure of the investment portfolio. It is important to note, however, that the Partnership may choose not to hedge positions and, in many cases, "hedging" may not reduce the risk in a position or the Partnership's portfolio generally. Security Analysis. The General Partner believes that rigorous research contributes to the Partnership's ability to limit its downside through a better understanding of its investments. In addition, the pursuit of situations in which the factors causing a security to trade at a discount to its true value and those likely to resolve the discount in a timely manner are clear, may significantly reduce risk. Limited Diversification. Notwithstanding the Partnership's philosophy of concentrating its investment portfolio, the General Partner believes that limited diversification, 499055.21 -6- EFTA00310627 or the holding of more than one security, can help reduce a portfolio's risk. The General Partner believes that much of diversification's risk-reduction benefits can be achieved in a portfolio of fewer than ten investment positions when the risks underlying those positions are uncorrelated. The Partnership intends to pursue a concentrated investment program; however, no more than 25% of a Limited Partner's capital account (calculated at the time a position is acquired and including the amount of any unfunded commitments with respect to such capital account ) will be invested in a single issuer or group of affiliated issuers. For purposes of determining whether an investment would cause the Partnership to exceed the 25% limit, long and short positions in the securities of an issuer and/or group of affiliated issuers will not be aggregated. Investment Review and Monitoring. The Partnership generally intends to conduct disciplined investment review and monitoring. Before a positi on is established, each investment opportunity will be reviewed against a number of specific risk criteria. In addition, each position will be periodically monitored and depending on the nature of the specific investment, such monitoring may include calls to management and industry sources in order to detect changes in the fundamental investment thesis. The General Partner believ es that these efforts may partially mitigate the effects of potential unforeseen negative developme nts in investments. KEY INVESTMENT HIGHLIGHTS/MERITS The General Partner believes that an investment in the Partnership offers an attractive risk-adjusted long-term opportunity for the following reasons: • Value-Oriented Investment Strategy. The General Partner believes that an emphasis on purchasing securities which are trading at material depar tures from their "intrinsic" values provides a "margin of safety" against permanent capita l loss and may offer the opportunity for substantial appreciation when their "intrinsic" values are realized. • Utilization of Short Sale Investments. The General Partn er believes that the use of short sales in establishing "paired" positions and stand-alone investments may enhance the Partnership's opportunity set of investments and reduce its market exposure. • Rigorous Research and Analysis. The General Partner believ es that rigorous research contributes to the Partnership's ability to limit its downside and to develop competitive insight into situations. • Concentration of Investments. While the degree of concentrati on will likely change over time and a concentrated portfolio will accentuate the effects of both good and bad investments, the General Partner believes that concentration may provide the ability to perform more extensive research and analysis and the poten tial for improved returns by allowing consolidation in situations with the most favorable risk/reward characteristics. The Partnership intends to pursue a concentrated investment program; however, no more than 25% of a Limited Partner's capital account (calculated at the time a position is acquired and including the amount of any unfunded comm itments with respect to such capital account) may be invested in a single issuer or group of affilia ted issuers. 499055.21 -7- EFTA00310628  • Insight into Mispricing and Focus on Value Realization/Crea tion. The Partnership will focus on situations in which the General Partner believes it has a competitive insight through identifying investment attributes which are not widel y recognized or are misread by the market. The Partnership currently plans to focus on situat ions which the General Partner believes are mispriced as a result of being underfollow ed, misperceived due to complexity or change, or are experiencing market overreactio ns or other structural inefficiencies. In addition, the Partnership will attempt to pursu e situations in which value creation or value realization will likely be achieved over a reason able period of time. • Experience and Background of the General Partner. Mr. Somm er has spent over ten years in various capacities conducting valuation analysis, perfor ming operational reviews and industry analysis, and managing a public market invest ment portfolio. His background, including employment at Goldman, Sachs & Co., McKinsey & Co. and Siegler, Collery & Co., has provided him with invaluable direct investment experience and a skill set which is well matched with the Partnership's investment philosophy. • Investment by the General Partner. Each of Mr. Bomm er and the current key employees has invested or committed to invest a substantial portion of his or her net worth in the Partnership. • Involvement of Reservoir. Investment funds (the "Rese rvoir Funds") controlled by Reservoir Capital Group, L.L.C. , a Delaware limited partne rship ("Reservoir"), have made a substantial investment in and commitment to the Partnership and are non- managing members of the General Partner. Reservoir's princi pals were previously investment partners at Ziff Brothers Investments, the entity respo nsible for investing the Ziff family capital. As of February 28, 2002, the Reservoir Funds' limited partner capital accounts in the Partnership had an aggregate value of appro ximately $68 million (net of accrued fees and expenses). THERE CAN BE NO ASSURANCE THAT THE OBJECTIVES OF THE PARTNERSHIP WILL BE ACH INVESTMENT IEVED AND INVESTMENT RESULTS MAY VARY SUBSTANTIALLY ON A QUA RTERLY AND ANNUAL BASIS. IN FACT, THE PRACTICES OF SHORT SELLING, LEVERAGE AND LIMITED DIVERSIFICATION CAN, IN CERTAIN CIRCUMS TANCES, SUBSTANTIALLY INCREASE THE ADVERSE IMPACT TO WHI CH THE PARTNERSHIP'S INVESTMENT PORTFOLIO MAY BE SUBJECT. (SEE "CERTAIN RISK FACTORS") MANAGEMENT OF THE PARTNERSHIP The General Partner SAB Capital Advisors, L.L.C., is the General Partner of the Partnership. The affairs of the Partnership, including its investment portfolio, are managed by Scott A. Bommer who serves as the managing member (the "Managing Member") and President of the General Partner. The Partnership draws on Mr. Bommer's experience in financial, industry and business analysis from his background in investment banking, management consulting, and public equity 499055.21 -8- EFTA00310629  management. While overseeing the activities of the General Partn er and the Partnership, Mr. Bommer also actively manages the 3(c)(1) Fund and the Offsh ore Fund, through the General Partner and/or its affiliates, and may provide services to other funds and accounts advised and/or administrated by the General Partner and/or its affiliates. Scott Bommer, served as a Portfolio Manager from April 1995 to at Siegler, Collery & Co., a value-oriented private investment February 1998 partnership. At Siegler Collery, he was responsible for identifying, researching, executing and monitoring numerous investment positions. During his tenure, Mr. Bommer employed a value-oriented, special situation investment strategy and performed extensive fundamental company, industry and financial analysis on his investments. His portfolio included long, short, and hedged equity positions, including several 13D filing positions, distressed debt and a priva tely structured investment. In addition to investing, Mr. Bommer contributed to recruiting, training and developing a team of investment analysts. Prior to joining Siegler Collery, Mr. Bommer worked from March 1995 as an Associate at McKinsey & Company, September 1993 to where he was involved in the restructuring of the sales and marketing department for a media client and the analysis of a strategic acquisition and joint venture for a global healthcare company. At McKinsey, he developed tools for industry and competitive analysis, basic marke t research skills and customer, supplier and competitor interview techniques. Prior to attend ing business school, Mr. Bommer worked in the Asset Related Finance Group at Goldman, Sachs & Co. from August 1988 to July 1990 where he was active in numerous financing transa ctions, including limited partnership, joint venture, leveraged lease, project related, and several public and private equity financings. Mr. Bommer graduated from Stanford University in 1988 distinction in Quantitative Economics, and from the Harva receiving a B.A. with rd Graduate School of Business in 1993 with an M.B.A. While at Harvard, he earned First Year Honors and served as a Teaching Fellow in a corporate finance class for the University's Depa rtment of Economics. In addition, Mr. Bommer researched several case studies while on a one-y ear Luce Foundation Scholarship in Tokyo, Japan. Brian Jackelow, joined Mr. Bommer in March 2000 and of the General Partner and the Management Company. Prior to serves as the Controller his current position, from August 1996 to February 2000, Mr. Jackelow worked at Basswood Partners, L.P., during which time he served as the Controller. While at Basswood Partners, Mr. Jackelow was primarily responsible for all of the daily accounting and was instrumental in automating back office functions and improving operating and tax efficiency. Prior to his time at Basswood Partners, from September 1994 to August 1996, Mr. Jackelow worked at Goldstein, Golub, Kessler & Co. as a staff accountant in the Financial Services and Hedge Fund division. Mr. Jackelow graduated from the State University of New York at Albany in 1994 with a B.S. in Accounting. Kenney Oh, joined Mr. Bommer in December 1998 President of the General Partner. Prior to his current position, and serves as a Vice- from July 1996 to November 1998 Mr. Oh served as an Investment Analyst and later a Portfo lio Manager at Siegler, Collery & Co. At Siegler Collery he was responsible for sourcing, analy zing, proposing and maintaining investments of the finn as well as training an investment analyst and leading the firm's analyst 499055.21 -9- EFTA00310630 recruiting effort. From July 1994 to July 1996 Mr. Oh was emplo yed as a Financial Analyst in the Mergers, Acquisitions & Restructurings Department of Morg an Stanley & Co., Inc. with a focus on media and telecommunications transactions. Mr. Oh graduated cum laude from the University of Pennsylvania with a B.S. in Finance from the Whar ton School and a B.A. in Intellectual History from the College of Arts and Sciences. At Whar ton, Mr. Oh was recognized as a Benjamin Franklin Scholar and as a Joseph Wharton Scholar. The Reservoir Funds have made a substantial investment in and the Partnership and are non-managing members of the General commitment to Partner and limited partners of the Management Company (defined below). The principals of Reservoir were previously investment partners at Ziff Brothers Investments, the entity respo nsible for investing the Ziff family capital. The Reservoir Funds have no control over investment decisions made on behalf of the Partnership, but provide the Managing Member with suppo rt on strategic, infrastructure and general business matters. (See "Summary - Reservoir Relationsh ip.") The Management Company SAB Capital Management, L.P., a Delaware limited partne "Management Company), provides administrative and manageme rship (the nt services to the Partnership. SAB Capital Management, L.L.C., a Delaware limited liability company controlled by Mr. Bommer, is the general partner of the Management Company. 499055.21 -10- EFTA00310631  SUMMARY The following summary is qualified in its entirety by the terms and conditions of the Limited Partnership Agreement of the Partnership, as amended from time to time (the "Partnership Agreement"), which should be read carefully and in its entirety by a prospective limited partner (a "Limited Partner"). THE PARTNERSHIP SAB Capital Partners, L.P. (the "Partnership") is a Delaware limited partnership which commenced operations on January 4, 1999. Interests in the Partnership are being offered exclusively to "qualified purchasers," as such term is defined under the Investment Company Act of 1940, as amended (the "Company Act"), and the rules and regulations promulgated thereunder. INVESTMENT OBJECTIVE The Partnership's investment objective is to earn attractive long-ter► rates of return while seeking to minimize the risk of permanent capital loss. While the Partnership may pursue a broad array of investment strategies (including those enumerated below), its primary investment focus is to purchase and sell short publicly traded securities of U.S. entities which the General Partner believes are trading at material departures from their "intrinsic" values. The Partnership's investment philosophy encomp